Colo. SC: Disgorgement not an available remedy under state law

Jessica M. Karmasek Jun. 5, 2012, 12:30pm


DENVER (Legal Newsline) - The Colorado Supreme Court last week ruled that when a public entity purchases unlawful securities under a section of state law, disgorgement is not an available remedy against the seller.

At issue is Jefferson County's purchase of securities through Capital Securities Inc.

In 2006, the county bought securities through the company and fellow defendants Jerry Manning and Adam Alves -- a purchase the county later determined was unlawful.

The county then sued Capital Securities, Manning and Alves, seeking, among other things, to disgorge the commissions earned by the company under a theory of common law restitution.

Disgorgement is defined as the forced giving up of profits obtained by illegal or unethical acts.

Both a trial court and the state Court of Appeals concluded that restitution was appropriate and ordered Capital Securities to give up their commissions.

The state's high court granted review to determine whether restitution is an appropriate remedy. In its May 29 opinion, it found it is not and reversed the lower courts' rulings.

"The statutory scheme adopted by the General Assembly expressly sets forth a number of remedies available to a public entity against a seller when -- as occurred here -- the public entity unlawfully purchases securities under section 24-75-601.1," Justice Allison H. Eid wrote for the Court.

"Significantly, while the legislature expressly provided a damages remedy (and specified how damages were to be calculated), an equitable remedy (repurchase) and a regulatory remedy (license revocation), it did not provide a disgorgement remedy under a theory of common law restitution.

"Under these circumstances, we conclude that the addition of disgorgement would impermissibly alter the extensive and detailed remedial scheme adopted by the legislature."

The Court remanded the case.

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